Coronavirus | New Zealand to go into lockdown for 7 days

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Kiwi hitting biggest daily fall since May but not since May.

The U.S. dollar into the US dollar; riskier currencies lose out

LONDON, Aug. 17 - The New Zealand dollar tumbled on Tuesday after the country identified its first COVID 18 case since February, prompting the government to announce new short-term lockdown measures.

The currency moved sharply in early Asian trading hours, extending losses around 0630 GMT when Prime Minister Jacinda Arden said that Auckland - where the case was reported - would go into lockdown for seven days, while New Zealand as a whole will go into the toughest lockdown for three days.

At 1126 GMT, the New Zealand dollar was down 1.4% at $0.6927, its lowest in 20 days and on target for its largest daily fall since May.

New Zealand has followed a very direct strategy that has helped it virtually eliminate COVID 19 domestically, allowing people to live without restrictions while its international borders remain largely closed.

The news came just a day before the country's central bank, Reserve Bank of New Zealand is widely expected to become the first among developed countries to raise interest rates since the pandemic as their economy booms.

The market for interest rate swaps indicated the probability of a quarter-point rate hike fell to 85%, from more than 100%. Analysts at the Australian Westpac and New Zealand's ASB Bank said that the RBNZ was likely to keep the rate steady.

However, Wells Fargo Asset Management's director of international multi asset portfolio management said that the currency remained attractive over the short to medium term due to its positive carry - a term for when a currency has a higher interest rate.

At this moment we do think that there could still be a hike, he said.

MUFG said in a client note that the RBNZ may well do a rate hike on Wednesday but guidance accompanying the action is now likely to be a bit more balanced with the RBNZ emphasising flexibility based on risks like any pick up in COVID cases.

Elsewhere, the tone in the currency markets was generally risk-averse, as European stock indexes were in red. Asian shares were rattled by concerns about China's plans to regulate the Internet sector, the latest move in a crackdown on the country's powerful tech companies.

The dollar improved at 92.701, after buying in the previous session. The Euro exchange rate was steady against the US dollar at $1.1771.

The Australian dollar fell to a nine-month low after central bank meeting minutes as dovish and was down $0.7293 on the day by 1138 GMT at $0.7293.

The minutes showed the Reserve Bank of Australia which surprised markets by sticking to its plan to start tapering bond buying, would be prepared to take policy action, should coronavirus lockdowns across the country threaten a deeper economic setback.

The Swiss Yen and the safe-haven Japanese franc were close to the 10-day high against the dollar of the previous session.

The two currencies were strengthened in recent days by weak economic data from the United States and China, which stoked worries that the spread of delta variant could slow the economy recovery from COVID -19.

The number of employees on German company payrolls moved closer to its pre-pandemic level last month and the unemployment rate was slightly below the 4.8% forecast by economists polled by Reuters.